Input tax credit under GST: Chapter V of model GST Law

Chapter V of CGST/SGST Act covers the provision of input tax credit under GST. Section 16 provide for the basic provisions for ITC.

1. Credit to electronic ledger: As per section 16(1) every taxpayer is eligible to take the credit of taxes paid subject to provisions of section 35(5) and this amount will be credited to the electronic ledger of the taxpayer. Section 35(5) provide for following:
2. Input tax credit on Opening stock if register within 30 days: When a person need to take compulsory registration under the Act can avail the input tax credit in respect of
   1. input tax paid on inputs held in stock and
   2. input contained in semi-finished or finished goods held in stock

On day immediately preceding the date on which he become liable to pay tax under the provisions of this Act

if he take registration within 30 days from the date he was liable to registration.

Here Important thing is we need to count 30 days from the day he was liable to take registration. Liability to take registration arise under section 9 read with schedule III.(click here for details of when liability to take registration arise) but the input credit will be available on stock immediately preceding the date when he become liable to pay tax.

Important: As per section 9 read with schedule III a person become liable for registration when his aggregate turnover exceeds Rs.9 lac (4 lac in case of North eastern states)  but he will be a taxable person only when his turnover will cross Rs. 10 lac. Reading section 16 and section 9 with schedule III we can say that the period of 30 days will be counted from date when aggregate turnover will cross Rs. 9 lac (or 4 lac as the case may be) but day we will consider for taking stock for input credit will the day immediately preceding the day when aggregate turnover will cross Rs. 10 lac.

3. Input tax credit on opening stock in case of voluntary registration: Section16(2A) provide that when a person takes voluntary registration then he can avail the
   1. input tax paid on inputs held in stock and
   2. input contained in semi-finished or finished goods held in stock

On the day immediately preceding the date of his registration.

4. Input tax credit on opening stock in transition from a compounding dealer to normal dealer: Section 16(3) When a person cease to pay tax u/s 8 i.e compounding dealer he should be able to take input tax credit in respect of
   1. input tax paid on inputs held in stock and
   2. input contained in semi-finished or finished goods held in stock

On the day immediately preceding the date from which he become liable to pay tax under section 7.

5. Time limit for input tax credit: Section 16(3A) input tax credit in any of above case will be available only up to one year from the date of issue of tax invoice relating to such supply.
6. Amount of credit to be calculated as per accounting principles. {Section 16(4)}
7. Input tax credit in case of goods/services used partly for business purpose and partly for other purpose: In case where any Goods and/or services are used partly for other purpose, input tax credit for said goods will be available proportionately for the portion used for business. Section 16(5)
8. Input tax credit when goods/services are used partly for taxable supplies and partly for exempted or zero rated supplies: when goods are used partly for taxable supply and partly for exempted supply then the portion which is used for taxable supply including the zero rated supply will be eligible for input tax credit. The portion used for exempted supply will not be eligible for input tax credit. Section 16(6)
9. Central or state government can make rule in this behalf (point no. 7 & 8 above) Section 16(7)
10. Change in constitution: Where there is a change in constitution of a registered taxable person on account of sale, merger, amalgamation, lease or transfer then such registered taxable person can transfer the unutilized credit to such resulting entity. Section 16(8)
11. When input tax credit is not allowed: section16(9)
    1. For motor vehicle except when they are supplied in usual course of business, or when they are used in following taxable services:
       1. Transportation of passenger
       2. Transportation of Goods
       3. Imparting training on motor driving skills
    2. Goods and / or services provided in relation to food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as leave or home travel concession, when such goods and/or services are used primarily for personal use or consumption of any employee
    3. goods and/or services acquired by the principal in the execution of works contract when such contract results in construction of immovable property, other than plant and machinery
    4. Goods acquired by a principal, the property in which is not transferred (whether as goods or in some other form) to any other person, which are used in the construction of immovable property, other than plant and machinery;
    5. Goods/services on which tax has been paid u/s 8 i.e. by a compounding dealer.
    6. Goods/services used for private or personal consumption, to the extent they are so consumed.
12. Depreciation of tax component is claimed: Where the taxpayer has claimed depreciation on the tax component of the cost of capital Goods under the income tax Act. Then the credit of such input tax shall not be allowed. Section 16(10)
13. Conditions to entitlement of credit: A taxpayer need to fulfil following conditions to get entitlement for the credit.
    1. he is in possession of a tax invoice, debit note, supplementary invoice or such other taxpaying document as may be prescribed, issued by a supplier registered under this Act or the IGST Act;
    2. he has received the goods and/or services;
    3. He has furnished the return under section 27 i.e. consolidated returns to be filed by 20 of next month.
    4. When the goods against an invoice are received in lots then taxable person shall be entitled to the credit upon the receipt of last lot.
    5. When the goods are delivered by a supplier to a recipient or any other person on the direction of such taxable person, whether acting as an agent or otherwise, before or during the movement of Goods, either by way of transfer of documents of title to goods or otherwise.
14. Reversal of Input tax credit: Section 16(12) A registered taxpayer shall pay by way of reversal of credit or by cash an amount equal to credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods stock on the day immediately preceding the day when
    1. He switch over to pay tax u/s 8 i.e. compounding scheme
    2. When the goods/services supplied by him become exempt u/s 10.
    3. After such payment if there is any balance in electronic input ledger it shall lapse
15. The amount of reversal in above clause will be calculated as per general accounting principles or as may be prescribed. Section 16(13)
16. In case of supply of capital goods on which input tax credit has been taken, the registered taxable person shall pay an amount equal to the input tax credit taken on the said capital goods reduced by the percentage points as may be specified in this behalf or the tax on the transaction value of such capital goods under section 15(1), whichever is higher.
17. A taxable person shall not be entitled to take input tax credit in respect of any invoice for supply of goods and/or services, after the filing of the return under section 27 for the month of September following the end of financial year to which such invoice pertains or filing of the relevant annual return, whichever is earlier. Section 16(15).
18. Where credit has been taken wrongly, the same shall be recovered from the registered taxable person in the manner as may be prescribed in this behalf.

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